Friday, October 10, 2008

Clearstone Ventures: Financial Services in Focus.

Among the several cross-border funds operating across the Silicon Valley in the United States and India is Menlo Park-headquartered Clearstone Venture Partners, which has some well-known successes from its portfolio that includes Paypal and Overture. But the fund says it doesn’t follow a copycat approach and has kept its investment focus in India different from its strategy overseas.

While oversees investments focus more on consumer internet and enterprise technologies, in India, says managing director Sumant Mandal, the fund is interested in consumer facing services covering a broad spectrum of sectors ranging from financial services and retail to telecom and entertainment.

The Fund

Clearstone has three global funds under its management. Indian investments are being made out of the third $215 million fund raised in 2005. So far around $15 million has been invested cumulatively in three Indian firms and an equal amount set aside for follow-on investments in these firms.

Its portfolio is pretty diverse compared to the average Silicon Valley fund, and its investee companies in India are BillDesk, a payments service provider, Digibee Microsytems, a mobile phone maker with facilities in Chennai and Bangalore, and Games2Win India, an online gaming company founded by serial entrepreneur Alok Kejriwal. Kejriwal is among the few entrepreneurs who made a success of their internet business when dotcoms were going bust in 2000.

Clearstone has co-invested in all three companies. In Games2Win, its most recent investment made in March 2007, it has co-invested with Silicon Valley Bank which is a minority investor. In Digibee, it has co-invested with SIDBI and in Billdesk along with State Bank of India. “Where the other investors bring some complementary value, we are not against co-investing. In Digibee, we saw value in co-investing with SIDBI because it brings credibility with banks here,” says Clearstone director Rahul Khanna.

Currently, the fund has offices in Mumbai and Bangalore in India. Khanna is based in India. Sumant, who works from California, travels to India every quarter. The fund is expanding its team in India. Apart from the US, it has operations only in India.

The Sweet Spot

The fund, while looking out for investment opportunities in business and entrepreneurs with potential, doesn’t confine itself to any single sector or sectors. “While we have a global fund, the themes are quite different,” says Khanna.

The fund prefers to invest in consumer-facing industries, be it in electronics or lifestyle, because it believes they have the capacity for scale and high growth.

One of the areas which it is currently exploring for potential investments is retail financial services. Apart from the sector, it looks at the track record of the entrepreneurs and whether they have relevant domain experience. The average period for which it stays invested in a venture is about five years although it could be longer in some instances.

It expects to make another one or two investments out of its global fund in India. Its next fund, which it plans to raise in early 2008, will have around $100 million earmarked for India. This fund will also be global fund with a corpus of $300 million - $400 million.

Mandal says the Clearstone is open to smaller investments as well in early stage companies and the investment size could range from half a million dollars to $20 million. In the US, its fund has helped build many companies right from the idea stage, although that has not been the case so far in India.

Sumant MandalManaging Director Clearstone Venture Partners

Company Overview

Clearstone Venture Partners is a venture capital firm specializing in seed and early stage investments. It also prefers to make later round investments in highly successful companies already backed by other venture capital firms with whom it has prior relationships. The firm seeks to invest in technology markets, including software, consumer, enterprise infrastructure, enterprise computing, storage, communications, optical communications, data center, enterprise software, security, wireless, micro-processors, imaging and transformative infrastructure, semiconductors, advanced optics, and consumer and business Internet sector.

With in enterprise software it focuses on New application models & service oriented architectures (Web Services), open source solutions, web-based application delivery models including “software as functional media”, and Microsoft exchange as a platform for enterprise collaboration. In consumer sector the firm seeks to invest in mobile phone applications, wireless multimedia, social networking applied to commerce, and where there is a broad intersection of technology & consumer activity.

Within communications it focuses on IP telephony, seamless wireless: integration of cell & WiFi, and services. In data center segment the firm seeks to invest in virtualization & utilization for scalability and performance. It prefers to invest in companies located near its offices. For earlier stage businesses, the firm seeks to invest in companies located within a one-hour plane flight of its Bay Area or Southern California offices and for later stage companies, it prefers to invest in Continental United States.

The firm also seeks to invest outside its region, with a local partner with whom it has previously invested, if it receives a promising proposal. The firm prefers to invest between $3 million to $15 million and could go for further investments in special situations. It seeks to be the lead investor and take a board seat on its portfolio companies. Clearstone Venture Partners was founded by Bill Elkus in 1998 and is based in Santa Monica, California with additional offices in Menlo Park, California and Maharastra, India.

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